A column on personal finance prepared by the Virginia Society of Certified
Public Accountants

THE TAX BENEFITS OF DONATING PROPERTY

November 21, 2003) – Thinking about making a year-end charitable contribution?
If so, keep in mind that tax-deductible donations are not limited to cash.
According to the Virginia Society of CPAs, many organizations accept gifts
of used cars, computers, clothes, art and other types of tangible property.
In return, taxpayers who itemize may qualify for a valuable tax deduction.

Generally, when you contribute property to a qualified charitable organization,
you can deduct the fair market value of the property at the time of the contribution.
According to the IRS, the fair market value is the price a willing buyer would
pay a willing seller, when neither is compelled to buy or sell, and both have
reasonable knowledge of all the relevant facts. However, special rules apply
to some types of property.

Here is an overview of the rules governing the most common types of non-cash
contributions:

Donating a Computer

When you donate computer equipment, the organization accepting the donation
should provide you with a receipt specifying the equipment you donated and
the date of your donation. It is up to you to determine the value of your donated
computer. In arriving at a figure, keep in mind that the market value of computers
falls quickly. Classified newspaper ads may help in establishing the value
of your donated property.

In general, if you contribute a car to a charitable organization, you can
claim a deduction for the fair market value, which takes into account not only
the year, the model, and the mileage of the vehicle, but also the vehicle’s
condition and local market variations. As a result, the fair market value of
a taxpayer’s car or other vehicle may be lower than the average price
listed in used vehicle guides, or “blue books” as they are often
called.

Contributing Used Clothing and Household Goods

When donating clothes and household goods, it is your responsibility to assign
a fair market value to your donations and obtain a receipt from the recipient
organization. For help in valuing used clothing, you might visit a used clothing
store or thrift shop. For household goods, you can look in the classified newspaper
sections for similar items being sold. Like used computers, the fair market
value of used clothes and household goods is far less than the price paid to
acquire them.

Donating Art and Collectibles

You may donate artwork, jewelry, and other collectibles as well, but the
rules become more complicated. To deduct the fair market value of your donation,
the gift must be put to a use related to the organization’s main activity
or charitable purpose. For example, if you donate your prized Picasso painting
to your local art museum, the painting must be used for study and appreciation
within the museum for you to write off the full market value. If, instead,
the museum wants to sell the painting to raise funds for a new wing, your deduction
would be limited to the painting’s original cost. For this reason, it’s
a good idea to ask the charity for a statement outlining its intended use of
your gift.

Transferring Ownership of Stocks and Mutual Funds

When you donate stock or mutual fund shares you have held for more than one
year, you may deduct the full current market value of the investment on your
tax return and avoid paying capital gains tax on the appreciated value. As
an example, let’s suppose your portfolio holds shares of stock you bought
five years ago for $1,000 that are now worth $5,000. When you donate those
shares, you get a deduction of $5,000 and you avoid paying capital gains tax
on the $4,000 in appreciated value.

Substantiating Your Donation

In any year in which you make total contributions of property exceeding $500,
you’ll need to complete and file IRS Form 8283, Non-cash Charitable Contributions.
This is true even if no one single property contribution was greater than $500.
If the value of any one piece of property or a group of similar items you contribute
(with the exception of publicly traded securities) exceeds $5,000, you need
a written appraisal of the property, and both the appraiser and the charity
must complete part of Form 8283.

Consult with a Tax Professional

If you’re unsure about the tax implications related to donating property
to charitable organizations, before making the donation, especially a substantial
one, contact your CPA. A CPA can guide you through the requirements for deducting
charitable contributions and assist you in understanding the impact on your
taxes.5

The Virginia Society of CPAs is the leading professional association
dedicated to enhancing the success of all CPAs and their profession by communicating
information and vision, promoting professionalism, and advocating members’
interests. Founded in 1909, the Society has nearly 8,000 members who work
in public accounting, industry, government and education. This Money Management
column and other financial news articles can be found in the Press Room on
the VSCPA Web site at www.vscpa.com.